WASHINGTON—During second-quarter investor conference calls this week, the CEOs of dialysis providers Fresenius and DaVita expressed concerns with the dialysis bundle’s “transition adjustment,” which was included in order to maintain congressionally mandated budget neutrality as the new payment model is implemented over the next four years.

“It was very disappointing to see that CMS [the Centers for Medicare & Medicare Services] elected to keep the transition adjustment in the way they did,” DaVita CEO Kent Thiry said during an Aug. 2 conference call with investors. “The 3.1 percent cut in reimbursement, we believe, is based upon bad assumptions and logic that takes us far beyond the 2 percent cut that Congress intended. This larger cut will increase our losses on Medicare patients and put more pressure on private insurers to subsidize these Medicare losses.”

Under the new end-stage renal disease prospective payment system (ESRD PPS) released in July, the base payment rate for each dialysis treatment is set at $229.63, which is 16 percent higher than the originally proposed a base payment rate of $198.64.

The new ESRD payment system is a single bundled case-mix adjusted payment to dialysis facilities for renal dialysis services such as dialysis treatments and supplies, certain ESRD-related drugs, and ESRD-related clinical laboratory tests

To reach that base rate, CMS had to take into account the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA), in which Congress mandated that the 2011 bundle payment needed to be 98 percent of the estimated total amount that would have been paid in 2011 under the old system of reimbursement.

Dialysis clinics have until Nov. 1 to choose whether to fully opt in to the new bundled rate or choose to opt out and phase in the new payment system over four years with progressive “blended” rates.

CMS estimated that 43 percent of dialysis facilities will choose to be excluded from the transition and that 57 percent of ESRD facilities will choose to be paid the blended rate during the transition.

“Consequently, we estimate that during the first year of the transition, total payments to all ESRD facilities would exceed the estimated payments under the ESRD PPS in the absence of the transition,” CMS wrote in the final rule.

Therefore, in order to maintain the 98 percent budget neutrality required by Congress, the final base payment rate reflects the 1 percent reduction to account for outlier payments, the 2 percent reduction to achieve budget neutrality and the 3.1 percent adjustment for the first year of phase-in.

“For 2011, application of this factor would result in a 3.1 percent reduction in all payments to ESRD facilities, that is, we intend to apply this adjustment to both the blended payments made under the transition and payments made under the 100 percent ESRD PPS,” CMS said in the final rule.

Some of the 1,500 comments on the bundle proposal expressed concern that the adjustment was too high and may not reflect facility decisions regarding the transition, and expressed concern about the proposed method of determining which facilities would choose to opt out of the transition. Some feel that the CMS estimates on how many clinics will transition are too low.

“We don’t quite understand exactly how it was calculated and why it’s applied the way it is. CMS has agreed to look at this by the end of 2012, if not before,” Fresenius CEO Ben Lipps said during an Aug. 3 conference call with investors. “It’s really the one area that is not what Congress intended. The 2 percent haircut is in there. I don’t think any of us were looking at an additional haircut with the transition adjuster.”

In addition, several commenters on the proposed rule believed that the 3 percent reduction during the years 2012 and 2013 will go beyond the 98 percent budget-neutrality requirement, according to the CMS final rule.

“Their [CMS’s] objective is to get a lot of providers in the bundle and they’re really getting in the way of that objective with the currently contemplated transition adjustment,” Thiry said during the Aug. 2 DaVita conference call.

CMS said the transition budget neutrality adjustment applies in each year of the four-year transition to the new payment system, and that it is considering whether to prospectively correct for over or understatement of the number of facilities that choose to opt out of the transition when the agency updates the adjustment for 2012.

“The issue for myself, and for anyone, is that we all have to declare when we go in or what we’re going to do by Nov. 1,” Lipps said during the Fresenius investor call. “It feels like a real penalty to a group that declares to go in 100 percent and then have the transition adjuster apply to them. I’m just having a hard time understanding the logic of why we would have a transition adjuster if we basically agree to go in 100 percent.”